U.S. Crude Oil Export Ban

Exporting crude oil from the U.S. for decades was largely illegal. Until lately, it had also been mostly unthinkable. Domestic production had been declining for decades and the country seemed hopelessly addicted to foreign supplies. Not anymore. Horizontal drilling and hydraulic fracturing have squeezed torrents of oil from shale rock deep underground. The U.S. produced more oil in 2013 than it imported for the first time in two decades and in June 2015 it surpassed Russia and Saudi Arabia to become the world’s biggest producer of oil and gas. Six months later, with an assist from a budget bill, the ban was headed for the history books.

The Situation

Congress voted in December to lift the 40-year-old ban on crude oil exports as part of a broader spending bill that averted the possibility of a government shutdown. The measure, which had the support of President Barack Obama, scrapped the trade restrictions in exchange for extending renewable energy tax credits — measures sought by primarily by Democratic lawmakers to cushion the potential impact on the environment. The U.S. had blocked most exports of crude oil — the stuff that comes from the ground before being turned into gasoline, heating fuel and other useful products — since the 1975 Arab oil embargo shocked the economy. Now production, which averaged 7.4 million barrels a day in 2013, will average 9 million barrels a day by the end of 2015. This is pushing down domestic prices more than foreign ones: West Texas Intermediate crude will average $49.53 a barrel in 2015, while Brent, the international benchmark, will average $53.96, the U.S. Energy Department estimates. In 2014, the U.S. began to open that door a crack when it allowed export of a type of minimally processed ultra-light oil known as condensate. In August 2015, it permitted an exchange of some crude oil with Mexico.

The Background

It may seem counterintuitive to talk about exporting crude oil when the U.S. still imports more than 7 million barrels a day, more than any other country. But crude oil isn’t perfectly fungible. Oil from different regions comes in different grades, meaning variations in density and sulfur content. The cost of moving crude by pipeline, rail or ship can also create bottlenecks. Most of the growth in U.S. production is light shale oil, but many refineries are configured to process heavier crudes from South America and the Middle East. As the debate heated up, the industry found ways to work around the oil-export ban. U.S. exports reached a record 586,000 barrels a day in April; most of it went to Canada, which is allowed with a license. That’s more than OPEC members Ecuador and Libya. The figure dropped to 409,000 in September. Companies also expanded shale processing equipment, such as Kinder Morgan’s simplified refineries called splitters that process condensate just enough to qualify as a product that can be legally exported.

The Argument

The drive to end the restrictions was led by U.S. oil producers, including Continental Resources, Pioneer Natural Resources. and ConocoPhillips. They argued that keeping the export ban would push down domestic prices until drilling became unprofitable, jeopardizing the U.S. goal of energy independence. Some independent refiners supported the ban to maintain their cost advantage, which helped them sell record amounts of fuels abroad (because exports of oil products were permitted). European and Asian refiners, by contrast, may benefit from access to U.S. crude. Some Democratic politicians, such as Senator Edward Markey of Massachusetts, have contended that allowing crude exports could lead to higher U.S. gasoline prices. (Similarly, government approval for facilities to ship liquefied natural gas was opposed by chemical companies that use the fuel as a raw material, arguing that exports would raise prices at home.) Many Democratic lawmakers and President Barack Obama had opposed the end of the ban as a step back on limiting carbon emissions. That led the Republican lawmakers pushing the ban’s end to pair it with extensions of tax breaks for renewable energy.

The Reference Shelf

Senator Lisa Murkowski, a ban opponent who heads the energy committee, issued a report on the U.S. energy outlook through the end of the decade.

Testifying before a House committee in July, Terrence Duffy, chairman of CME Group, which runs the New York Mercantile Exchange, said that without the ban, the world could use the U.S.’s West Texas Intermediate benchmark oil price instead of European Brent.